Russia’s finances hurt by cheaper oil and the costs of the war in Ukraine

Russia’s budget surplus disappeared over the summer, according to data released this week by the Russian Finance Ministry. At the end of June, the surplus was 1.37 trillion rubles ($23 billion); it fell to 137 billion ($2.3 billion) at the end of August.

Revenues are under pressure. Oil has traditionally been a larger component of Russia’s budget than natural gas, and prices for Brent crude — Europe’s benchmark — have fallen about 25% since peaking in early June.

That’s a big hit, even before the EU puts into effect an embargo on Russian offshore oil imports and a price cap planned by the G7 in December. And while natural gas prices in Europe remain incredibly high, Russia’s gas shipments to the European Union and the United Kingdom are down 49% since the start of the year, Gazprom said last week.

Spending has also risen sharply, both on the military and on measures to protect the economy from the impact of Western sanctions, according to Janis Kluge, senior fellow at the German Institute for International and Security Affairs.

Real-time data from the Russian government shows the budget is in deficit, adding that the Kremlin’s financial hole could get much wider as military spending rises.

“Military spending was projected to be 3.5 trillion rubles this year, but that level was probably exceeded already in September,” Kluge said in emailed comments to CNN.

Russian business daily Vedomosti reported on Wednesday, citing sources close to the government, that the finance ministry had told government agencies to cut spending by 10% in 2023. Defense spending, however, would increase, a source close to Vedomosti mentioned. As the Ministry of Defense said.

Speaking on Monday, Russian President Vladimir Putin denied the economy was in trouble, saying the West’s tactics of “economic criticism” had failed, saying Russia was “facing external pressures with confidence”.
Putin met Chinese leader Xi Jinping at a summit in Uzbekistan on Thursday. Trade between the two countries has soared in the past six months as Russia has sought new markets for its energy and Chinese exporters have taken advantage of the exodus of Western brands.